Dollar up as investors glean hope from data

Decent demand at Treasury auction also supports greenback

By

LisaTwaronite

PolyaLesova

WilliamL. Watts

SAN FRANCISCO (MarketWatch) -- The U.S. dollar rose against most major counterparts Thursday, as investors took hope from revised U.S. gross domestic product data, which showed a less dire contraction than many had feared.

U.S. real gross domestic product plunged at a 6.3% annualized seasonally adjusted rate in the fourth quarter, the Commerce Department reported Thursday in its third estimate of quarterly growth.

GDP hadn't fallen so much since the first quarter of 1982. It was the third largest decline in GDP in 50 years.

However, the downward revision to a 6.3% drop was smaller than the 6.7% decline expected by economists surveyed by MarketWatch. A month ago, the government agency said the economy fell at a 6.2% annual rate. See Economic Report on GDP.

The dollar index
DXY, +0.55%
a measure of the greenback versus a basket of major currencies, rose to 84.105, compared with 83.712 in North American trade late Wednesday.

The dollar rose to 98.50 Japanese yen, up from 97.68 yen late Wednesday, and the euro bought $1.3520, down from $1.3580.

"Despite the doom and gloom outlook by some economists and the pessimistic feel on Main Street, recent economic data has not been as weak as everyone expected," said Kathy Lien, director of currency research at GFT.

"Currency traders shrugged off the underlying weakness because the GDP report is backward-looking," Lien said. "The smaller revision provides relief but investors are still cautious about believing in a recovery."

Separate data showed ongoing weakness in the U.S. labor market.

The number of people collecting state unemployment benefits has reached yet another new record, jumping 122,000 to a seasonally adjusted 5.56 million in the week ended March 14, the Labor Department reported Thursday. See Economic Report on weekly jobless claims.

Also supporting dollar sentiment, the U.S. government received decent demand for a record large sale of seven-year notes, temporarily putting to rest fears that the government may have trouble finding buyers for its massive debt plans this year. See Bond Report.

Euro-zone lending slows

The euro lost ground after data from the European Central Bank showed a further deceleration in private-sector lending.

Loans rose 4.2% in February compared to the same month a year ago, slowing from an annual pace of 5% in January. The pace of household and corporate lending growth both continued to ease.

"It took a while, but now the lending slowdown has become extremely evident and seems to be gathering momentum," said Marco Valli, an economist at UniCredit MIB.

"Against this background, pressure on the ECB to adopt further unconventional policy measures in order to encourage banks to lend more is likely to continue to grow," wrote Ben May, an economist at Capital Economics.

The British pound traded at $1.4444, down from $1.4538 late Wednesday.

Weighing on sterling Thursday were data showing a much sharper-than-expected drop in February U.K. retail sales.

Retail sales volume fell 1.9% in February, for a 0.4% rise compared to the level seen in the same month last year, the Office for National Statistics reported Thursday.

The year-on-year figure marked the slowest rate of growth since September 1995. A Dow Jones Newswires survey of economists had forecast a 0.4% monthly decline and a 2.5% year-on-year rise.

The greenback made wild swings on Wednesday, as traders reacted to remarks by U.S. Treasury Secretary Timothy Geithner on the dollar's status as the world's premier reserve currency. See full story on Geithner.

The dollar sold off sharply after Geithner made remarks that were taken as a signal that the Obama administration was open to looking at a Chinese proposal to reduce the dollar's role.

The dollar soon recovered after Geithner clarified that he believed the greenback should remain the world's reserve currency, but traders remained disposed toward selling the greenback in Asian trade Thursday, said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

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